2/04/2009 @ 11:00AM

Hyundai Set Bait, U.S. Consumers Bit

In a Super Bowl advertising landscape where some big-name automakers were notable no-shows, Hyundai Motor was not one to hide its light under a bushel.

The South Korean company was the only carmaker to splurge on two separate ads during Sunday’s game, for which 30-second ad spots fetched up to $3 million. And it is no wonder: the company actually managed a double-digit jump in its January U.S. sales, compared with continued double-digit declines for its Japanese rivals. Hyundai is capitalizing on the sliding Korean won, aggressively grabbing the attention of U.S. consumers in a bid to grab market share during the downturn.

Hyundai’s U.S. sales soared by 14.3%, to 24,512 vehicles, in January, according to Tuesday’s sales data, on the success of the company’s innovative buyback program. Consumers flocked to showrooms after the company allowed buyers to return vehicles for a refund within one year if they lost their primary income stream–an assurance many appeared to need at a time when the U.S. economy continues to shed hundreds of thousands of jobs a month.

The positive results were a “surprise,” said Kevin Lee, a Seoul-based analyst for Good Morning Shinhan Securities. He attributed the sales boost as well to the company’s strong push for fleet sales, which go primarily to rental car companies, in late 2007. That effort is now bearing fruit. An increased presence in the rental car market can boost retail sales, as customers gain more familiarity with a brand. Hyundai rode the big sales jumps in its Elantra and Accent models, relatively low-cost small to midsized sedans.

Hyundai’s target is not to make a profit this year but to increase market share, Lee said. Based on January’s data, Hyundai’s U.S. market share is 7.1%, which would yield “skyrocketing volume” if the company held on at that level through a recovery a few years from now. The U.S. market constitutes about 40% of Hyundai’s sales.

Hyundai Motor
has insured itself against the possibility of a flood of customers wanting to return their cars, Lee said. Hyundai has paid a fee to insurance companies, which will buy back the cars from those laid off. One-year used cars typically sell at a 30% discount to the price of new cars, but Hyundai will end up losing less than that on cars that are returned as a result of the deal. Hyundai has chalked up the insurance cost as a marketing expense.

Hyundai can afford to launch strong incentive and marketing programs this year because the depreciation of the won, last year’s worst-performing currency in Asia, boosted overseas earnings. The won averaged 1,108 against the dollar in 2008, and has risen to a range between 1,300 to 1,350 won so far this year, leading to a 20% upside for Hyundai. Meanwhile, Japanese auto manufacturers are seeing their earnings blasted by the yen’s surge, making their exports more expensive abroad.

Hyundai and its affiliate, Kia Motors, may be in a relatively strong position, but the South Korean auto sector is deeply troubled nonetheless, as the country’s smallest carmaker, Ssangyong Motor, teeters on the verge of bankruptcy. (See “Ssangyong: First Domino To Fall In Global Auto Crisis.”)